Quarter after quarter, year after year, Texas Roadhouse has posted sales figures that are more typical of a startup than a 26-year-old brand vying for the eroding customer base of a graybeard market. How has it managed to keep same-store sales growing while so many casual chains of its size (564 units) are gulping oxygen? Here are some points of difference that would strike any regular listener of management’s presentations to Wall Street.
It’s contrarian on labor. Most restaurant operations are striving to reduce their labor needs, be it for reasons of cost or availability. Roadhouse is deliberately raising its staffing levels to improve service, even with the significant hit to margins. “While the additional investments create short-term pressure, we believe the long-term sales benefit is worth it,” CEO Kent Taylor told investors. Roadhouse restaurants spent an average of 7.4% more per week on labor during the second quarter. About 2.8 points of that increase came from an increase in scheduled hours. The philosophy is based on an analysis that showed restaurants with higher staffing levels tended to generate more sales growth, in part because the staff is in place to handle the volume. Taylor noted in the company’s analyst call that the average Roadhouse is now handling 94 more guests per week on average than it did a year ago.
It has a conscience in founder Kent Taylor. An org chart lists the wisecracking ex-TGI Fridays bartender as CEO, but Taylor wields far more influence than even that lofty title suggests. Roadhouse has famously refused to follow the casual-dining pack into delivery, in no small part because Taylor can’t fathom how a guy lugging a third party’s hot bag can convey the same experience Roadhouse strives to deliver in its sawdust-carpeted dining rooms. He’s also preserved signature features such as having servers dance when the mood hits them and inviting customers to toss the shells of their complimentary peanuts on the floor. Turnaround specialists say the key to their work is identifying what made a concept stand out in its earliest days, and then bringing those attributes back. Roadhouse never let them lapse. It’s likely not a coincidence that Roadhouse is one of the few major casual chains to still have its founder at the helm. Taylor recently strengthened that influence by assuming the duties of president following the sudden retirement of President Scott Colosi.
It can resist the Shiny New Thing. Delivery isn’t the only ballyhooed new thing Roadhouse has decided to forgo. When the fast-casual market started turning consumers’ heads, it stuck with full service instead of plunging into that market, unlike P.F. Chang’s (Pei Wei Asian Diner), Red Robin (Burger Works), California Pizza Kitchen (CPK Express), Cracker Barrel (Holler & Dash) and, more recently, Outback Steakhouse (Aussie Grill), The Cheesecake Factory (Social Monk Asian Kitchen) and Applebee’s parent Dine Brands (yet to be determined.) Before adding sports bar concept Bubba’s 33 to its fold as a potential second growth vehicle about five years ago, Roadhouse’s stab at diversification was yet another casual concept, Aspen Creek. Time will tell if a no-go decision on limited service was the right one, but many of the other full-service giants’ spinoffs have failed to catch fire.
It proceeds with deliberation. Roadhouse has been tinkering with Bubba’s 33, its secondary concept, since 2013 (the lore holds that the high-volume operation was named after Taylor, whose nickname is reportedly Bubba). Sometime around the start of 2020, after a seven-year test drive, the company will decide on an expansion strategy for that concept. And it continues to fiddle with the 20-unit brand. Weekday lunch is being tried at five stores. A new test store eliminates the kitchen service bar where table servers can get their drink orders filled. Another features more seats in the bar than the restaurants that preceded it. Typical of Roadhouse, the strategy is hardly a run-and-gun approach. The same holds for takeout, a high priority for the Roadhouse brand after years of dabbling.
Of course, there is another explanation for Roadhouse’s outstanding performance. But steroids testing just doesn’t fit the restaurant business.